1/28/09

NEWSPAPER RESTRUCTURING IS PAINFUL, BUT NECESSARY

Financial pages are full of developments and changes at newspaper companies and these are being commented upon anxiously by those in the industry. Unpleasant conditions certainly abound, but these development are not indications that the industry is dead or dying in the near future. What they signal is that things which worked in the past are not working now, that newspaper companies are badly in need of restructuring, refocusing, and renewal, and that the boards of the companies and the company managers are taking badly needed action.

The techniques for restructuring are no mystery. First, you need some cash. This can be obtained by attracting new capital through investment or loans. New York Times Co. did this recently by borrowings $250 million from Carlos Slim. Other firms are looking for friendly investors with liquidity.

Another way of raising cash is by turning assets into cash. A classic move made by many types of firms is the sell their building and lease back any space that is needed. Media General and New York Times Co. are currently employing this tactic. Financially troubled companies can also be expected to shed some of their poorest or best performing holdings to raise cash, so it is likely that we will see a number of newspapers companies putting papers up for sale in the near future.

Reducing and restructuring existing debt lessens financial performance pressures on companies. To accomplish it, they use cash that is raised to pay obligations imminently due or to make early partial payments to debt holders in exchange for obtaining better interest rates or lengthening payment terms. Watch for such transactions in the coming months.

As part of restructuring, many newspaper-based companies will seek to refocus on core news and informational activities, divesting non-core activities to raise cash. Baseball teams, holdings in cable systems, advertising service firms, and other types of peripheral companies are being sold or considered for sale.

Few newspaper company executives have experience restructuring and reorganizing their firms to make them leaner and more efficient or strong financial management background. The current environment requires different managerial skills so many newspaper firms will be looking outside the industry for experience. GateHouse Media, for example, has now hired a chief financial officer with a financial management background at companies including PayCheck, NCR , and PriceWaterhouse.

Expect to see multiple actions throughout the industry that are parts of the restructuring of newspaper companies in the coming month. Some will be painful, but will have two effects. First, it will lessen the financial pressures of the debt many companies are carrying. Second, it will force them to rethink their newspapers and the value and quality they are or aren’t providing.

1 comment:

Tony in SLO said...

This is a provocative hypothesis: Printing The NYT Costs Twice As Much As Sending Every Subscriber A Free Kindle

http://www.businessinsider.com/2009/1/printing-the-nyt-costs-twice-as-much-as-sending-every-subscriber-a-free-kindle

While this is a cursory analysis, the writer is on to something.

Could a smart newspaper, willing to accept its place in a modern media marketplace as an elite medium - like theater is to entertainment - be willing to drop, or reduce, its amount of newsprint-based delivery by giving away Kindles to subscribers who commit to a year or two years like cell phone companies do?

Here you can offer portability; sell display, print-like ads that could be interactive; offer more current, updated news through a day and even provide interactivity for readers (such as commenting) like a Web site would.

This would be a radical change in the business model, but isn't a radical change necessary if newspapers are to find a way to continue to finance long-form journalism?